Last week, in First American Title Insurance Co. v. Western Surety Co., the Virginia Supreme Court ruled that a title insurance company, First American Title Insurance Co., could maintain a private cause of action based in common law against its surety company, Western Surety Co., for Western’s breach of a surety bond required under the Virginia Consumer Real Estate Settlement Protection Act (“CRESPA”), Va. Code Ann. § 55-525.16, et seq.
The Virginia Supreme Court first held that CRESPA did not afford First American a private right of action to bring suit under the statute itself. However, the Court noted that CRESPA did not expressly abrogate a common law cause of action for parties injured by a breach of a required bond. As a consequence, the Court held that in Virginia, a statutory bond that expands liability from the statute requiring the bond, like CRESPA here, was still enforceable as a “common law voluntary obligation.”
In this case, the CRESPA-required surety bond issued by Western to First American specifically provided that “any aggrieved person may maintain an action in its own name against this bond.” Based on this language, the Court held that a party could maintain a common law cause of action for breach of contract under the surety bond. The Court went on to find that while First American had no standing to sue under the surety bond in its own right, it could stand in the shoes of the bank that had been insured by First American, and that, as a party to the real estate transaction in question was protected by the bond required by CRESPA. Once First American paid off the claim by the bank under the title insurance policy – which claim was apparently based on the negligence of First American’s title agent in the course of the real estate settlement – First American became the subrogee of the bank with entitlement to sue Western and recover under the surety bond.
First American Title Insurance Co. is an important decision for title insurance companies seeking recovery from their surety company. Title insurance companies should be aware that, depending on the terms of their own title insurance (e.g., whether they have subrogation rights to the claims of their insureds) and the terms of their surety bonds (e.g., whether such bonds provide for a private right of action), they may be able to pursue a breach of contract claim on a CRESPA-required bond.